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Economists predict stimulus effects

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Politico takes five of the largest components of the bill and asks economists for their analysis.
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If 60 percent of the money is spent – as opposed to saved, as happened with the 2008 rebate checks – that would add about $40 billion or so to the economy, a sizeable infusion in fast faltering retail markets.

But even that sum is actually only three-tenths of 1 percent of the country’s Gross Domestic Product, Baker noted, hardly enough to turn the economy around on its own.

Food Stamps/Unemployment/Health care

The bill includes several provisions totaling about $86 billion to help struggling workers survive the downturn.

The government will subsidize a large portion of COBRA premiums, the health care bridge for workers who lose their jobs, for up to nine months, at a cost of nearly $25 billion for workers making less than $125,000 or working couples making less than $250,000.

The bill would extend unemployment benefits from 20 to 33 weeks at a cost of $27 billion, increase those benefits at a cost of $8.8 billion, and exempt the first $2,400 of benefits from federal income taxes, which costs $4.7 billion.

Finally, the bill would increase food stamp payments by 13.6 percent at a cost of $19.9 billion.

Other economists disagree, saying the money will go into the pockets of those that need it badly because they’ve lost a job or otherwise cannot make ends meet. Their stretched budgets would effectively force them to spend their government assistance – and boost the economy.

Alternative Minimum Tax

To gain some bipartisan support for the package in the Senate, Democrats agreed to include a nearly $70 billion patch of the alternative minimum tax patch. But this is more politics than stimulus.

Congress has passed a bill preventing middle and upper-income tax payers from getting slammed by the additional tax for the past several years. As a result, few taxpayers anticipate getting hit by the tax — rendering the provision a zero on the stimulative scale, according to economists across the ideological spectrum.

“The fact is the AMT patch is something everyone had to expect would happen, and so it had to be more or less factored into people’s plans already,” said Kevin Hassett, director of economic policy studies at the American Enterprise Institute, a conservative think-tank, and an adviser for Republican John McCain’s, presidential bid.

Horney notes that by including the $70 billion patch and then limiting the size of the bill, Congress wasted a significant portion of their bill. “The problem is, in putting it in, then you have to limit or get rid of other things,” he said.

State Aid

The compromise bill includes a $53.6 billion “state stabilization fund” aimed at helping struggling states avoid layoffs and continue services.

The bulk of the money – more than $45 billion – goes to local school districts and bonus grants to states that meet education performance markers. The remainder is for other high priority needs such as police, fire and public safety. On top of that, states also got an $87 billion boost to help pay rising Medicaid rolls.

Many economists praise this spending as the best part of the bill since it can be deployed most quickly to stop layoffs and other spending cuts at the state and local level forced by balanced budget laws.

Although the money will fill only half of the total budget gap in the states, the money is critical, Horney said.

Seeing states lay-off workers and cut benefits “is exactly counter to what you need to try and get the economy going again,” he said.

“It should have been bigger,” said Hampel. “You get some of the biggest bang for the buck” by preventing layoffs, since a dollar spent to keep someone in a job is just as effective as one spent to hire a worker – and it takes a lot less time than other forms of spending.

The Democrats are taking action to save the American economy and this is what the voters elected them for in November. The repuglicans on the other hand, create the crises and then do nothing to remedy the situation.It's left to the rest of us to clean up their mess! Obama/Biden 2012

I really think President Obama is a glorious orator ten years before his times. I really think if we just get him to accept he is supposed to put out one our of Cosbyesque per week but at his constitutional salary and not at $150,000 per hour/episode we might get past his BIG BROHTER complex of thinking >>> if only I am in their faces for an hour and a half every day I will but convince them I am not just someone who after a year or two of all past challenges didn't try to move on to "taking classes to learn how to rise above such real challenges." How do you speell lassie off faaire === laise faire? I know I meant to write something else but an invisible hand seemed to take over. >>> yes Erin Burnett >> two hands may always be better than one Hand.

?Social safety net or economic pain mitigation is perfectly appropriate" says the conservative Heritage Foundation's senior fellow J.D. Foster, "but they don't have anything to do with stimulus." Other economists disagree, saying the money will go into the pockets of those that need it badly because they've lost a job or otherwise cannot make ends meet."--it's ironic that everyone agrees how vital perception--i.e. MORALE-- is to the marketplace, but somehow is irrelevant when it comes to ordinary workers? Maybe these people don't have individual $ clout, but there is significance in their numbers.

Glad everything is fine in the alternate universe inhabited by the Republican'ts. Don't bother lifting a finger. The Demos will save your constiuents, who will re-elect you despite not having done a thing for them.

No one read the bill, it should be unconstitutional. Any one who receives tart funds are not allowed to talk about card check or speak out against it? All states must take money not negotiable, there is a bill about guns stuck in there. China doesn't want to loan us the money, they are talking about down rating our credit in the US. Everyperson who voted for this bill should be voted out of office because they didn't even know whats in there! This is big brotherr wanting total control wrapped in a so called stumulus bill. Where is the 48 hours they promised ?

For close to two weeks, people like Boehner have complained that no one had read the bill, no one had seen it. So I wonder how they concluded that it was full of pork, or addressed the wrong issues. They've just been blowing off steam and holding things up without coming up with any solid plans of their own. And wihout having read the bill.

Glad everything is fine in the alternate universe inhabited by the Republican'ts. Don't bother lifting a finger. The Demos will save your constiuents, who will re-elect you despite not having done a thing for them.

The depression of 1920-21 represented the worst single year decline of the GNP price deflator in US history (yes, worse than any single year during the Great Depression). And what did the Harding administration do about it? It cut taxes and cut government spending. The depression was over by 1922 and the tax and spending cuts set the stage for the prosperity of the Roaring 20s.

On the other hand, Hoover and FDR engaged in massive government interventions in an effort to end the depression of 1929 and their efforts resulted in a depression which stretched across 3 decades and led to a world war. Those who don't learn from history are destined to repeat it.

Glad everything is fine in the alternate universe inhabited by the Republican'ts. Don't bother lifting a finger. The Demos will save your constiuents, who will re-elect you despite not having done a thing for them.

The depression of 1920-21 represented the worst single year decline of the GNP price deflator in US history (yes, worse than any single year during the Great Depression). And what did the Harding administration do about it? It cut taxes and cut government spending. The depression was over by 1922 and the tax and spending cuts set the stage for the prosperity of the Roaring 20s.

On the other hand, Hoover and FDR engaged in massive government interventions in an effort to end the depression of 1929 and their efforts resulted in a depression which stretched across 2 decades and led to a world war. Those who don't learn from history are destined to repeat it.

G Dubya did little else besides cut taxes and start wars too. How did that work out? Or do you think the 1920s are more relevant than the 21st century?

Let me guess, when this "stimulus" package fails to do anything but prolong the recession you're going to say it's because it wasn't big enough

Let me guess. When this bill works and the economy recovers, you'll say it was because of the tax cuts in it and the spending did nothing. Typical GOP'er: "Party First.... Country Last". Stick to the same old warped principals that have been shown to be a failure, and never admit your party is outdated and out of touch with reallity. The Republicans are not the party of Lincoln. You are the party of Herbert Hoover.

I wish people would get schooled on the great depression and the new deal(s)... some things worked great and some things not so much! You have been watching too much fox! read this guys post (excerpt below)... "...the issue was never how fast FDR rebuilt the economy, but how well he did it. It was a Herculean task that was going to take a long time no matter who was doing it. But at the end of the day, if you?re undergoing open-heart surgery to save your life, do you want the guy who will do it in 10 minutes with a jackknife, or in 2 hours with a surgical team? Or, in Hoover?s case, someone who can?t do it fast or do it right? Any effort to launch a quick fix in 1933 would have led to a speculative-bubble sugar-high like the one that caused the Depression in the first place. Building safely and soundly, as FDR did, was what got confidence, spending and investment going. America saw that, and reelected him three times. People in the political world never seem to grasp the fact that although their own world moves fast, economic change moves slowly. Note that I said economic, not financial ? currencies and stocks can jump all over the place in a day, but the underlying economic fundamentals just don?t change that fast. And when you ask these critics ? what could FDR have done to speed things up? ? a silence descends. " from http://www.politicalforum.com/...

The Republicans have decimated the stimulus plan. Senator Grassley gets $70 billion in an Alternative Minimum Tax that has zero stimulus and then votes "NO" on the bill. Wow! They are deliberately setting President Obama up for failure. Mark Zandi (John McCain's campaign economic advisor) said the first House bill was very good and advised John McCain to vote for it. He didn't. We will have to punish the Republicans again in 2010.

I agree with you Suzy Q - it would not have killed the nation to wait until Monday to vote considering the "compromise" bill appeared to add about 300 pages to the thing passed by the Senate. So what terms and conditions have been slipped in? I'm not opposed to a stimulus and I wonder if the science dollars spent on a Pelosi mouse might be better targeted to other research and transportation dollars targeted to something other than an elevated train between California's Disneyland and Harry Reid's Las Vegas. I'm not opposed to tax breaks that target stimulus and why did the tax break for homebuyers get whittled down and limited to first-time buyers? How about targeting buyers who are one-home owners and may be buying a new home after selling their old primary and only residence? That keeps out the flippers. What about the tax breaks for people buying a new car? That would help get rid of all the excess inventory out there (why give the car companies TARP $$ and shut out a possibility for them to actually sell something and pay us taxpayers back).